What the 2012 Federal Budget Means for Retirement Plans

While the 2012 budget may have spared seniors already in retirement any cuts to their benefits, those planning for retirement must now shave two years of Old Age Security (OAS) benefits off their retirement plans. For many, this could mean the difference between retiring at 65 and retiring at 67.

What OAS and GIS Are
Full OAS benefits are not enough to live on, but they do act as a cushion for rising costs of items a retiree cannot control, such as the price of food or rising property taxes. You can find current payment tables here, and the OAS program is indexed to keep up with the cost of living. Eligibility for the program is based on how long one has been a Canadian citizen, so most Canadians born and raised here will be eligible for full benefits.

Lower-income seniors also qualify for the Guaranteed Income Supplement (GIS). Even those who’ve saved up a retirement nest egg and own their own homes may qualify for GIS, especially if the nest egg is a small one. GIS is based on monthly income from your retirement benefits, not the amount of money you have in the bank.

Age Limits Imposed by the 2012 Budget
Anyone born after April 1st, 1958 will be affected by the changes to OAS in the federal budget. There are positives and negatives to the changes, the most glaring being the move up in eligibility from 65 to 67. However, if you choose to work longer, you can defer your OAS benefits by up to five years, giving you a higher monthly income when you do choose to draw OAS benefits. In an age when 60 is the new 40, these are actually financially sound moves that will ensure that OAS will be around for Canadians when they retire. However, it does require a slight shift in retirement plans that have previously accounted for OAS.

Shifting Your Retirement Plan to Retire at 65
If you shift your plans to retiring at 67 to keep up with the new OAS rules, you don’t need to make any changes. If you are 30-40 and are socking away funds into the bank, you don’t really need to do anything differently either. Just the fact that you are responsibly contributing towards your retirement is enough, and chances are you need your money for other responsibilities right about now. If you are 40-54 (54 is the cutoff age for the new OAS rules), think about putting away an extra $50 to $100 a month in your plan.

Why It’s Best not to Rely on OAS
While it is nice to think we are paying into a government pension through our taxes and something will be there for us when we retire, it is best to plan as if you are never going to receive OAS at all. That way, OAS serves as a cushion rather than as a needed source of income. If you have the luxury of formulating a retirement plan at all that isn’t derailed by unforeseen expenses, you should count yourself as very lucky and chances are good you won’t need a reverse mortgage or to work in years you otherwise would be retired.

Why Reverse Mortgages are an Option
Many people inquiring about reverse mortgages did everything in their lives right. They saved for retirement in the right way that was advised by the experts. But there was no way that they could have foreseen the volatility of the stock market in 2008, or any other numerous life events that can easily throw off a retirement plan. Reverse mortgages are a legitimate and carefully regulated way to help seniors get through a retirement that may not be as fully funded as they thought.